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Designing On-Chain Options: Amortizing Perpetual Options

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  • Maxim Bichuch
  • Zachary Feinstein

Abstract

Financial options are fundamental to traditional markets, enabling strategies ranging from hedging to speculating. Yet, while the Automated Market Maker paradigm has revolutionized decentralized spot markets, no equivalent standard has emerged for on-chain options. Typical designs attempt to replicate centralized exchange mechanics, requiring high-frequency oracles and robust liquidation engines which may fail during stress events. This paper presents a design for amortizing perpetual options tailored to the operational and adversarial constraints of blockchain environments. Leveraging this primitive, we introduce a decentralized market framework with minimal consistency requirements. We demonstrate that this contract functions as a foundational risk primitive for DeFi, enabling applications such as endogenous collateralization and explicitly priced de-peg insurance, thereby showing that this design provides a layer for mutualizing tail risk across protocols without reliance on centralized clearing institutions.

Suggested Citation

  • Maxim Bichuch & Zachary Feinstein, 2026. "Designing On-Chain Options: Amortizing Perpetual Options," Papers 2605.19146, arXiv.org.
    • Handle: RePEc:arx:papers:2605.19146
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    References listed on IDEAS

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    1. Jiahua Xu & Krzysztof Paruch & Simon Cousaert & Yebo Feng, 2021. "SoK: Decentralized Exchanges (DEX) with Automated Market Maker (AMM) Protocols," Papers 2103.12732, arXiv.org, revised Mar 2023.
    2. Srisht Fateh Singh & Vladyslav Nekriach & Panagiotis Michalopoulos & Andreas Veneris & Jeffrey Klinck, 2025. "Option Contracts in the DeFi Ecosystem: Opportunities, Solutions, and Technical Challenges," International Journal of Network Management, John Wiley & Sons, vol. 35(2), March.
    3. Guillermo Angeris & Alex Evans & Tarun Chitra, 2023. "Replicating market makers," Digital Finance, Springer, vol. 5(2), pages 367-387, June.
    4. Maxim Bichuch & Zachary Feinstein, 2022. "Axioms for Automated Market Makers: A Mathematical Framework in FinTech and Decentralized Finance," Papers 2210.01227, arXiv.org, revised Feb 2025.
    5. Robin Hanson, 2007. "Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation," Journal of Prediction Markets, University of Buckingham Press, vol. 1(1), pages 3-15, February.
    6. Kimura, Toshikazu, 2010. "Valuing continuous-installment options," European Journal of Operational Research, Elsevier, vol. 201(1), pages 222-230, February.
    7. Papa Ousseynou Diop & Julien Chevallier & Bilel Sanhaji, 2024. "Collapse of Silicon Valley Bank and USDC Depegging: A Machine Learning Experiment," FinTech, MDPI, vol. 3(4), pages 1-22, December.
    8. Hamed Amini & Maxim Bichuch & Zachary Feinstein, 2023. "Decentralized Prediction Markets and Sports Books," Papers 2307.08768, arXiv.org, revised Jan 2025.
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